NMS Properties says they are vindicated by City audit

A four-month long multi-department review of NMS Properties’ contracts with the City of Santa Monica failed to produce a smoking gun or even very much smoke.

The audit spanned three departments: the City Attorney’s office, Planning and Community Development and Housing and Economic Development and looked at contracts, agreements and affordable housing requirements set by the City. The review included all affiliates of NMS Properties, including newly founded WNMS, according to Andy Agle, director of Housing and Economic Development, who worked on the report.

“What we were just wanting to do was put out the facts,” Agle said, declining to elaborate on the six-page report. It will be up to the City Council to direct staff to follow-up if they have any concerns.

The report found NMS in compliance with development agreements and contracts concerning the 23 buildings they own and manage in Santa Monica.

In December, a Los Angeles County Superior Court judge found CEO Neil Shekhter and his associates submitted a forged contract and destroyed evidence as part of a civil suit over a joint venture involving Boston-based hedge fund AEW. As a result, Judge Soussan Bruguera gave AEW control of nine properties – seven of which are in Santa Monica. Attorneys for NMS appealed and a stay has been placed on the ruling while it works its way back through the courts.

Soon after the ruling, NMS spokesman Eric Rose faced tough questions from Councilmember Sue Himmelrich who requested the review along with Councilmember Kevin McKeown. Himmelrich was concerned about the future financial viability of the City’s largest developer and his ability to meet contractual obligations. At the time, Rose promised full cooperation.

“NMS is pleased that the City’s thorough inquiry is resolved,” Rose said in a statement to the Daily Press. “We feel vindicated by the City’s report, which clearly shows that NMS has been in full compliance with all of its regulatory agreements and obligations.”

The audit found NMS is in compliance with all development agreements and – so far – moving forward on pending contracts, including a land swap that will allow the City to rebuild Fire Station 1. In an email to the Daily Press, McKeown said the City has more work to do.

“Our big challenge may be with NMS agreements that are not yet finalized, including one that could affect our City’s ability to construct a much-needed downtown fire station,” McKeown said. NMS still has to secure the necessary entitlements to complete the land exchange.

The bulk of the report looks at affordable housing requirements that all developers must adhere to in order to build large projects in the City. Of NMS’ 615 apartments governed by deed-restrictions – meaning the tenants pay lower rents and must fit certain qualifications – 89% of them are in compliance.

A breakdown of the rest revealed 33 vacant apartments, 32 tenants over the allowed income level and 3 households that did not file paperwork. Rose explained the tenants over the allowed income had met requirements at one time, but had most likely received new jobs or promotions since moving in. Santa Monica laws will allow many of those tenants to stay in their homes. The three households that did not submit income documentation have already received 90-days notices to vacate.

“As to 33 vacant apartments, those are just normal vacancies that represent about 5% of the total units, an industry-standard vacancy standard,” Rose said.

The report does not address Himmelrich’s major concern: how the potential loss of nine properties and various lawsuits could impact NMS’s bottom line. A spokesman for NMS says the company has plenty of money and fulfilling contractual agreements in the future will not be a problem. At the moment, NMS has ten Development Agreement applications moving through the pipeline.